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NEW YORK -- Compaq Computer Corp. chairman and CEO Michael Capellas reiterated his support for the proposed merger with Hewlett Packard Co., but acknowledged Compaq has a back-up plan if the deal falls through.

In a keynote speech at Fall Internet World here Tuesday, Capellas said the so-called "plan B" was just good business.

"So whats all this talk about plan B? Obviously you would expect us to have an ongoing business plan," Capellas said. "Quite frankly it is a question of common sense. It is not particularly new."

Objections to the fusion of the companies by the Packard family foundation have cast doubt on whether the merger will actually happen, but Capellas made it clear he backs the deal.

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"Let me make it absolutely clear that I support the merger," Capellas said. What was the rationale? [In terms of] fault tolerant computing, supercomputing...distributed SANS, high-end storage...there is no company, collectively, that can do a better job,"

Capellas addded that the combined company would be able to build out services as well, and that shareholders supported the merger.

He did address a pragmatic employee memo that has been making the rounds on the Internet. The memo, which mentions the possibility that Compaq will remain "a standalone company," is now posted on the companys Web site, Capellas said.

The rest of Capellas keynote was standard fare, with predictions about the future of computing and as much cheerleading as is considered tasteful during a recession.

"Theres no question that weve gone through a pretty tough period," Capellas said, referring to the industry as a whole, and attributing the problem to "hyper growth that was built, to some degree, on artificial demand."

Capellas said that the industry faces commoditization of products on the low end, and in terms of creating enterprise applications many companies are guilty of "just pasting stuff on the front end" rather than dealing with the whole solution.

Still, he said there is a demand for new products.

"The one thing Im absolutely sure of is that were continuing to have latent demand," he said. "When it shifts and how it breaks is an interesting question, but I dont think theres any doubt that its going to happen."

Most computing environments are focused on text-heavy applications, he said, and they need to be set up for "rich media" environments.

"Were used to looking at data that has nice rows and columns, simple interfaces," he said. "Unstructured data means new user interfaces."

This does not have to mean replacing the entire infrastructure of a company, but, rather, "extending" it, Capellas said.

"As content moves we will have to have a distributed computing environment," he said. The distribution model will change, not the infrastructure, he explained.

Capellas expects success in the "IT utility concept."

"It is the model of the telephone," he said.

Capellas also gave a nod to supercomputing and the need for clustered server nodes - applications that deal with human genomes, weather forecasting, nuclear simulation, and medical diagnosis and treatment will require massive computing power, he said.

He added that enterprise data store, data mining and simulation, content delivery, and commercial applications in general will require an always-on computing environment.

"The new paradigm is that you cant have planned downtime, either, because the application always runs," he said.

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